It was just over a year ago that we were all reading about the Commercial Court’s decision in Cofely v Bingham to remove an arbitrator under section 24 of the Arbitration Act 1996, finding that there were grounds that raised the real possibility of apparent bias.
Fast forward to 2017 and, once again, arbitrator removal has been before the Commercial Court (in H v L and others). This time, we don’t know who the parties or the arbitrator are, just that the court decided that there were no circumstances that gave rise to “any justifiable doubts as to [the arbitrator’s] impartiality”.
Not only does the judgment provide a helpful summary of the principles of acting fairly and impartially, I also thought that it was interesting to see the court relying on adjudication enforcement judgments as part of its reasoning.
H v L and others
Everyone in the judgment is known by a letter. If, like me, you find it difficult to follow who is who when they are referred to like Alphabetti Spaghetti, I’m going to make it a bit easier and adopt the following:
- H – the claimant, so I’ll call it that.
- L – the first defendant, a Bermudan insurance company that wrote the top layer of the claimant’s liability insurance (the insurer).
- M – court appointed arbitrator, who the claimant wanted to remove (the third arbitrator).
- N and P – the claimant’s appointed arbitrator and the insurer’s appointed arbitrator.
- Q and R – the claimant’s co-defendants in American proceedings.
The relevant background includes litigation in America in 2014, when the claimant and its co-defendants were found liable. Before judgment was handed down, the claimant negotiated a settlement. It then sought to claim on its liability insurance. However, the insurer rejected the claim, arguing that the settlement was not a reasonable one and it had (reasonably) not consented to it.
The claimant referred its dispute with the insurer to arbitration. Although the arbitration clause was contained in a Bermudan insurance policy (the Bermuda Form), which was subject to New York law, it provided that any arbitration would take place in London and would be subject to the Arbitration Act 1996.
In early 2015, the parties each appointed arbitrators. In June 2015, Flaux J in the Commercial Court appointed the third arbitrator. At the time, the claimant objected to the third arbitrator’s appointment, arguing that it was:
“… uncomfortable with any retired English Judge or English QC being appointed because of a concern, apparently, that they would interpret the policy through English eyes and be incapable of applying the modified New York law governing the policy.”
However, Flaux J rejected this objection.
Interestingly, the claimant did not object to the third arbitrator’s appointment based on information that he had disclosed, which included acting as the arbitrator in a number of arbitrations where the insurer was a party (including appointments on behalf of the insurer) and two pending references involving the insurer. It was only later (in November 2016) that the claimant objected to the third arbitrator’s other appointments, when it discovered that he had subsequently accepted an appointment as an arbitrator in two other references:
“Each involved a claim by R against its excess liability insurers writing cover for R’s liabilities arising out of the incident. One involved a claim by R against [the insurer].”
In the court proceedings that followed, the claimant argued that this conduct gave rise to an appearance of bias.
Principles for acting fairly and impartially
The judgment contains a helpful summary of the relevant principles, which are equally applicable in adjudicator appointments. As such, I think it is worth setting them out:
- Section 33 of the Arbitration Act 1996 requires the tribunal to act fairly and impartially between the parties. (Section 108(2)(e) of the Construction Act 1996 and paragraph 12(a) of the Scheme for Construction Contracts 1998 require the adjudicator to act impartially. It is the principles of natural justice that have developed through case law which require an adjudicator to act fairly.)
- The question whether circumstances exist giving rise to justifiable doubts as to an arbitrator’s impartiality is to be determined by applying the common law test for apparent bias (Locabail (UK) Ltd v Bayfield Properties Ltd, A v B).
- The test is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased (Porter v Magill).
- The fair-minded observer is gender neutral, is not unduly sensitive or suspicious, reserves judgment on every point until he or she has fully understood both sides of the argument, is not complacent and is aware that judges and other tribunals have their weaknesses.
- The “informed” observer is informed on all relevant matters, such as the local legal framework, including the law and practice governing the arbitral process and the practices of those involved as parties, lawyers and arbitrators (Helow v Secretary of State).
- The test is an objective one. The fair-minded observer is not to be confused with the person who has brought the complaint, who lacks the objectivity that is the hallmark of the fair-minded observer. He is far from dispassionate (Harb v HRH Prince Abdul Azsiz Bin Fahd Bin Abdul Aziz).
- The IBA guidelines may assist the court on conflicts of interest and what matters may require disclosure. However, they do not override the applicable legal principles. If there is no apparent bias in accordance with the legal test, it is irrelevant whether the IBA guidelines were complied with (Cofely v Bingham, A v B).
- All the factors that are said to give rise to the possibility of apparent bias must be considered cumulatively (Cofely v Bingham).
So, with those principles in mind, Popplewell J embarked on a detailed examination of the claimant’s three grounds for removing the third arbitrator. I will focus on the first of those grounds.
Accepting the subsequent arbitration appointments involving R
Popplewell J had “little hesitation” in concluding that the claimant’s arguments would not cause a fair-minded or informed observer to have any doubts about the third arbitrator’s impartiality. Interestingly, he suggested that if the claimant did have any doubts, that was due to a “fundamental misunderstanding” about an international arbitration in London, governed by the Arbitration Act 1996.
In reaching this conclusion, he:
- Highlighted that arbitrators are not a representative of the appointing party or there to protect or promote that party’s interests.
- Emphasised the nature of the duty under section 33 and suggested that someone with the third arbitrator’s experience would:
“…treat as second nature the fact that his duty of impartiality was entirely unaffected by the identity of the party appointing him, and would expect such independence to inform his entire approach to the subject reference.”
The claimant also argued that there was a substantial overlap between its claim with the insurer and those arbitrations involving its co-defendant, R. Continuing to be involved in all the arbitrations would give the third arbitrator information that may not be available to the claimant in its arbitration.
In rejecting this argument, Popplewell J noted:
- That in insurance and re-insurance claims, experienced arbitrators may sit in different arbitrations arising out of the same factual circumstances or subject matter. He described it as a “regular feature”.
- There is a “limited pool of talent” when it comes to arbitrators with the right knowledge and expertise, at least arbitrators that the parties may have confidence in.
- The duty in section 33 requires arbitrators to decide a case on the basis of the material in that arbitration. Arbitrators are able to put out of their minds material from another reference (or from other sources).
Popplewell J could just as easily have suggested that this is also true of construction disputes and adjudication in particular. In this context, he referred to two familiar adjudication judgments: Amec v Whitefriars and Beumer Group v Vinci.
Amec v Whitefriars
Popplewell J noted that arbitrators are:
“… well able to put out of their minds material they may have encountered in another reference… just as they put out of their minds what they may have read in the general or trade media… They will not decide a reference on the basis of an argument or material which has been raised in another arbitration without giving the parties an opportunity to deal with it.”
He referred to the Court of Appeal’s judgment in Amec and said that Dyson LJ’s comments on bias “apply with as much force” to international reinsurance arbitration as they do to adjudicators in building disputes:
“The mere fact that a tribunal had previously decided the issue was not of itself sufficient to justify a conclusion of apparent bias. Something more is required.”
Beumer Group v Vinci
In Beumer, the application to remove the adjudicator was successful and Fraser J had suggested that adjudicators should not:
“… be permitted to conduct another adjudication involving one of the same parties at the same time without disclosing that to the other party.”
Popplewell J said that he didn’t read this as Fraser J meaning that an adjudicator couldn’t accept two appointments with a common party, rather it was the fact that the common party (Beumer) was advancing “mutually inconsistent cases” in the two adjudications that “brought doubt on [the adjudicator’s] ability to act impartially” and meant there should be disclosure of his involvement in both adjudications.
Applying this to the facts, the third arbitrator’s acceptance of the two appointments by the co-defendant, R, did not give rise to an appearance of bias against the claimant.
As Jonathan said at the time:
“… adjudicators really do need to err on the side of caution, and it would be sensible for them to adopt the principle that, if there is any doubt as to whether an involvement constitutes a conflict of interest, this should be disclosed.”
That must also be true of arbitrators, consistent with Popplewell J’s findings in this case.